A recent Bloomberg article was titled”Pandit “near death” hoard signals lower bank profits“, and stated that Citigroup Inc. and JPMorgan Chase & Co. were hoarding cash as if another crisis were on the way. Also, a Wall Street Journal article entitled “Jittery Companies Stash Cash“ showed cash on the balance sheets of S&P 500 companies was the highest in 40 years.

The chart below, courtesy of economist David Rosenberg of Gluskin Sheff & Associates, shows that credit is still contracting as banks go through the painful process of repairing their balance sheets. As indicated, bank lending has now declined for 21 weeks in a row and over this entire period a total of $216 billion (15% at an annual rate) of loans and leases has vanished.

“The contraction

...

Asian economies are recovering faster than previously thought and will lead the charge out of the worst global downturn since the 1930s, according to new forecasts by the Asian Development Bank (ADB) – a Manila-based institution that promotes economic and social progress in the Asia-Pacific region.

After slashing its forecast for the region in March, the ADB reversed course in its updated Asian Development Outlook (ADO) 2009. The bank said developing economies in Asia would grow by 3.9% this year, up from its previous forecast of 3.4%.

“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said ADB Chief Economist Jong-Wha Lee.

However, the growth will not be evenly distributed. Economic growth in East Asia will be driven largely by China’s dynamic economy. But economic growth in Southeast Asia will be sluggish, because the recoveries of Vietnam and

...

Albert Edwards, London-based strategist of Société Générale, has always been a firm favourite among Investment Postcards’ readers. His latest research report appeared earlier this week and saw him remaining firmly in the bearish camp.

Edwards’s “Global Strategy” report is subtitled “Money makes the world go round down” and argues that monetary stimulus will have only a limited impact in reviving the global economy. “Massive quantitative easing (QE) around the world has undoubtedly melted the clots of some of the most clogged arteries of the global financial system. That has made things less worse, which is not the same as better,” said Andrews.

Edwards highlights that debt aversion is causing bank lending and the money supply to slump (outside of China) and he has difficulty to see a

...

By Cees Bruggemans, Chief Economist FNB

Let us for a change take somebody at his word.

Larry Summers, for instance. Economic advisor to US President Obama, Larry has been sending signals that could well shape also us in rather fundamental ways in coming years.

It could mean the Rand might be forced stronger and that our interest rates are too high.

Misreading such tealeaves would be very costly for us, with a too strong currency hitting exporters (our long-term Achilles heel) and too high interest rates keeping our domestic economy unnecessarily back.

Larry has been saying for some time it can’t be business as usual for the world. Whatever domestic origins of the US financial crisis, the global economic imbalances are not healthy, feeding the wrong behaviours.

Seeing and treating Americans

...

U.S. stocks fell on Monday as concerns about the global economy’s health weighed on Wall Street, following a hefty sell-off in Chinese equities.

Energy shares led the decline after the sharp drop in China’s main stock index increased worries about a potential rebound in global energy demand and oil slipped below $70 a barrel.

Shares of Chevron Corp tumbled 1.2 percent to $69.81 and Exxon Mobil dropped 0.8 percent to $69.56. The S&P Energy index <.GSPE> was down 1.8 percent.

The Shanghai Composite index <.SSEC> fell nearly 7 percent to a three-month low on fears that China’s government is trying to moderate economic growth and choke off some speculation in its stock market by tightening bank lending.

“China’s decline is just scaring people,” said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.

“The world is partially relying on China’s economic growth to bring us out of this recession, and given the

...

Oil prices fell nearly 4 percent to below $70 a barrel on Monday as fear of a curb in Chinese bank lending dented optimism about the pace of economic recovery and a potential rebound in global energy demand.

U.S. crude for October delivery settled down $2.78, or 3.8 percent, at $69.96 a barrel, having fallen as low as $69.13 in intraday trade. In London, Brent crude settled down $3.14 at $69.65 a barrel.

China’s key stock index dived 6.74 percent on Monday to a three-month low, prompted by concern that China’s government is trying to moderate economic growth and choke off some speculation in its stock market by tightening bank lending.

European equities closed lower and U.S. stocks fell after China’s index fall.

“The oil markets have been strongly affected by what’s going on in China, where the fear is that authorities will rein in on lending and in the process curtail growth,” said Phil Flynn,

...

As mentioned in yesterday’s edition of “Words from the Wise“, the Chinese Shanghai Composite Index has now recorded four consecutive down-weeks. The Index witnessed another massive sell-off this morning, declining by a further 6.7% to take its total loss since the peak of August 4 to 23.2%.

The losses happened on concerns of large Chinese share issuance and slowing bank lending. The banking regulator has already instructed lenders to raise reserves to 150% of their non-performing loans by the end of this year - up from 134.8% at the end of June, and the central bank has increased money-market rates to drain liquidity.

I have written a fair bit over the past two weeks about the overbought level of most global stock markets and also how China - a leading market on the way up - could be the catalyst for triggering a reversal of fortune in global

...

EFG-Hermes, a Cairo-based investment bank, noted to investors last week that it expects the Egyptian pound to fall to LE 5.70 by the end of 2009 and LE 5.90 by the end of June 2010 relative to the U.S. dollar. The pound has strengthened by 2.2% against the dollar since March, hurting exports and in-turn stalling GDP growth–which is set to fall to 3.1% in 2009-2010 from 4.1% in the year prior, the firm posited. “With credit growth slow and low loan-to-deposit ratios, exchange rates are a more effective channel than bank lending for supporting growth, by improving export competitiveness. The Nominal Effective Exchange Rate (NEER) has been stable since June, but we think that the [Central Bank of Egypt (CBE)] will encourage some trade-weighted EGP depreciation before the end of 2009,” speculated EFG economist Simon Kitchen to investors. Yet while Kitchen’s theory makes

...

Per The Jakarta Post, bank lending in Indonesia grew by just 2.09% from December last year to June compared with 16.26% a year earlier. Working capital loans slid the most, a sign of firms’ reluctance to expand, and banks also cutback loans out of fear that non-performing loans (NPL)–currently at 3.94%– would increase beyond the central bank’s accepted 5% threshold. Yet central to the reasons why businesses are reluctant to borrow, argues Erwin Aksa, chairman of the Indonesian Young Entrepreneurs Association, are their lenders’ self-imposed, high deposit rates. Large sovereign bond issuances have driven up the cost of money, as do the demands of large depositors–most of whom are state-owned companies, and which currently account for roughly one-half of banks’ third-party funds. The vicious cycle impairs liquidity, however, as banks fear above anything else a loss of depositors and a sudden run

...

I found this a href="http://www.bloomberg.com/apps/news?pid=20603037amp;sid=a2uzw71az3O0"interesting story /aabout emerging market specialist Mark Mobius. I've copied a couple of quotes here:br /br /blockquotepMark Mobius said global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares.br //pp“When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”br /br /The biggest risk for global stocks is the increase in initial share sales and bond issues, Mobius said today. Investors will be “selling to take up new stocks, that will impact the prices,” he said. Mobius, who oversees about $25 billion, ...